Q&A Hero

Q: Which of the following is counted in the GDP in a given year?A) the sale of Microsoft stockB) the sale of a used Mustang convertibleC) the dollar value of the housework done by a stay -at-home momD) the sale of a new handmade ukulele

Q: Considering the data from the table shown above, assuming that the market basket cost of light bulbs and volleyballs in the base year was $4500, what would be the price index for the year 2010?A) 177.78 B) 156.30 C) 100.00 D) 92.70

Q: If I voluntarily end my employment, the Bureau of Labor Statistics would consider me to beA) a job loser. B) a job leaver.C) a discouraged worker. D) a reentrant.

Q: Dead capital isA) machinery that fails to operate properly.B) machinery that requires constant maintenance.C) any capital resource that lacks clear title of ownership. D) a capital resource that depreciates rapidly.

Q: When the economy is at its natural rate of unemployment,A) it is still experiencing frictional and cyclical unemployment. B) it is still experiencing structural and cyclical unemployment.C) it is still experiencing frictional, seasonal, and structural unemployment. D) it is still experiencing frictional, structural, and cyclical unemployment.

Q: An increase in the money supply, other things being constant, A) causes interest rates to rise.B) generates an increase in the demand for money. C) causes the price level to increase.D) causes the purchasing power of money to increase

Q: The Federal Deposit Insurance Corporation insuresA) banks against lawsuits. B) the federal funds market.C) the deposits held in member banks. D) the deposits held in the Fed.

Q: The financial institutions in our banking system are all in the business of transferring funds from savers to investors. This process is known asA) lobbying. B) parachuting.C) money laundering. D) financial intermediation.

Q: The largest component of U.S. federal spending that contributes to the U.S. government budget deficit isA) entitlements. B) military spending.C) interest expenses. D) salaries of government employees.

Q: The crowding-out effect refers toA) an increase in the consumption of domestic goods at the expense of imported goods.B) an increase in the consumption of imported goods at the expense of domestic goods. C) a decrease in consumption and investment caused by an increase in government borrowing.D) a decrease in consumer spending caused by a decrease in consumer confidence.

Q: Consider a closed economy without a government and without international trade. What will be true when this economy is in equilibrium?A) Total planned real investment spending will exceed total planned real expenditures. B) Planned real investment spending will exceed real planned saving.C) Planned real consumption spending equals real GDP.D) Planned real consumption spending plus planned real investment spending equals real GDP.

Q: Planned ConsumptionPlanned SavingPlanned InvestmentReal GDP$6,000-$1,000$1,000$5,00010,0000-10,00014,0001,000-15,00018,0002,000-20,00022,000--25,00026,000--30,000According to the above table, the marginal propensity to consume isA) 0.6. B) 0.5. C) 0.75. D) 0.8.

Q: In the simple Keynesian portion of the upward sloping short -run aggregate supply curve, A) equilibrium real GDP is demand-determined.B) equilibrium real GDP is supply-determined.C) equilibrium real GDP is neither determined by aggregate supply nor by aggregate demand.D) equilibrium real GDP is determined by both aggregate supply and aggregate demand.

Q: Which of the following would likely result in a shift of the aggregate demand curve to the right? A) a tax cut B) a decrease in job security C) a rise in the real interest rate D) a decrease in the quantity of money in circulation

Q: Entrepreneurship functions better whenA) patent laws are not strongly enforced since they make imitation difficult.B) government provides technical support to entrepreneurs.C) a system of private property rights permits entrepreneurs to capture the rewards from their entrepreneurial activities.D) universities provide research that is closely interrelated with the entrepreneurial activities.

Q: Constant dollars are dollarsA) corrected for general price level changes.B) measured in terms of current -year prices.C) issued by the U.S. Treasury with values that fail to change even in the face of inflation or deflation.D) issued by the Federal Reserve with values that fail to change even in the face of inflation or deflation.

Q: Which of the following is NOT included when calculating GDP?A) the dollar value of a new bookB) the dollar value of a new iPodC) the dollar value of a newly issued corporate bondD) the dollar value of tuition expenditures at a community college

Q: In the table shown above, assuming that the market basket cost of light bulbs and volleyballs in the base year was $4500, what would the price index for this two -good market equal in the year 2005?A) 104.86 B) 100.00 C) 112.52 D) 122.22

Q: If a person is laid off from a job, he is considered by the Bureau of Labor Statistics to be aA) job loser. B) reentrant. C) job leaver. D) new entrant.

Q: Explain the role of economic freedom in economic development.

Q: NAIRU stands forA) national inflation rate when unemployment is low. B) nonaccelerating inflation rate of unemployment.C) normal average rate of inflation when unemployment rate is zero. D) national average inflation rate at zero unemployment rate.

Q: According to the quantity theory of money,A) real Gross Domestic Product (GDP) is directly related to changes in the money supply in the long run.B) velocity varies indirectly with the rate of growth of the money supply.C) a proportionate increase in the money supply leads to a less than proportionate increase in real Gross Domestic Product (GDP), at least in the long run.D) a given proportionate increase in the money supply leads to an equal proportionate increase in the price level.

Q: Suppose a person deposits a paycheck in a bank. The transaction deposits are money, so has the money supply increased? Explain.

Q: How does the liquidity approach to measuring the money supply differ from the transaction approach?

Q: In the long run, a higher government budget deficit causes A) a decrease in both private spending and equilibrium real GDP. B) an increase in both private spending and equilibrium real GDP. C) a decrease in private spending while equilibrium real GDP remains unchanged. D) no change in private spending but a decrease in equilibrium real GDP.

Q: If an increase in government spending causes an increase in government borrowing, this could induceA) an increase in interest rates, which would cause private domestic investment to fall. B) an increase in interest rates, which would cause private domestic investment to rise. C) an increase in interest rates but no effect on private domestic investment.D) a decrease in interest rates, which would cause private domestic investment to rise.

Q: What is the result when real planned saving exceeds real planned investment spending?A) The economy is in equilibrium.B) There is unplanned accumulation of business inventories.C) There is unplanned depletion of business inventories. D) Employment expands.

Q: Planned ConsumptionPlanned SavingPlanned InvestmentReal GDP$6,000-$1,000$1,000$5,00010,0000-10,00014,0001,000-15,00018,0002,000-20,00022,000--25,00026,000--30,000According to the above table, if real Gross Domestic Product (GDP) is $30,000, planned saving equalsA) $2,000. B) $3,000. C) $4,000. D) $5,000.

Q: According to Keynes, the classical model could not explainA) a recession or depression. B) periods of rising unemployment.C) a long-term economic decline. D) periods of rising interest rates.

Q: An increase in the U.S. price level causes aA) shift of the U.S. aggregate demand curve to the right.B) shift of the U.S. aggregate demand curve to the left. C) movement up the U.S. aggregate demand curve.D) movement down the U.S. aggregate demand curve.

Q: A system of private property rightsA) encourages economic growth by creating incentives to invest in capital and to be innovative.B) discourages economic growth by discouraging the development of new ideas and ways of doing things.C) reduces the efficiency of government, which reduces the growth rate of the economy over time.D) encourages investment but discourages entrepreneurial activity, so the effect on economic growth is uncertain.

Q: Assume that the nominal GDP for a given year is equal to $12,400 billion and the GDP deflator equals 112. Real GDP for that year is approximatelyA) $13,888.0 billion. B) $12,512.0 billion. C) $11,071.4 billion. D) $12,228.1 billion.

Q: Gross domestic product is a measure ofA) the total value of all transactions in U. S. markets. B) the added value of production.C) the dollar value of final goods and services produced in the United States.D) the dollar value of the aggregate measure of business as measured by the Dow Jones Industrial Average.

Q: Considering the data in the table shown above, what is the inflation rate between years 2005 and2010?A) 0.0 percent B) 41.7 percent C) 17.1 percent D) 3.4 percent

Q: In the United States, the labor-force participation rate since 1960 has beenA) increasing for females. B) declining for females.C) declining for both males and females.D) unchanged for both males and females.

Q: An increase in population growth in a countryA) always causes an increase in labor resources.B) may not necessarily cause an increase in per capita real GDP.C) may not cause an increase in labor resources in rich countries because employers will cut down on the number of hours required of workers. D) will always cause an increase in per capita real GDP.

Q: The nonaccelerating inflation rate of unemployment (NAIRU) is the rate of unemployment thatA) is consistent in each time period with a steady rate of inflation. B) is identical to the natural rate of unemployment.C) includes only structural and cyclical rates of unemployment when there is no inflation. D) includes only frictional and cyclical rates of unemployment when there is no inflation.

Q: An assumption used in the quantity theory of money is thatA) the price level is constant. B) velocity is constant.C) nominal Gross Domestic Product (GDP) is constant. D) the money supply is constant.

Q: How are the assets and liabilities changed for a bond dealer, the bond dealerʹs bank, and the Fed when the Fed buys $100,000 in bonds?

Q: For the United States, what is money based on the transactions approach to measuring money?

Q: In the long run, a higher government deficit does not affect equilibrium real Gross Domestic Product (GDP), so that continuous increases in the government deficit willA) lead to greater tax revenues.B) reduce the price level.C) reduce spending on privately provided goods and services.D) increase the unemployment rate.

Q: Because of crowding out, A) expansionary fiscal policy during a recession must involve a tax increase. B) expansionary fiscal policy during a recession is reinforced by private investment spending. C) expansionary fiscal policy is diluted by the decline in investment spending caused by higher interest rates. D) expansionary fiscal policy is completely achieved even with a decline in investment spending.

Q: When real planned saving is greater than real planned investment spending,A) the interest rate will increase. B) the interest rate will decrease.C) real GDP will increase. D) real GDP will decrease.

Q: Suppose when real disposable income is $5000, planned real consumption is $4000. When real disposable income increases to $6000, planned real saving increases by $500. The new planned real consumption expenditures isA) $5,000. B) $4,500. C) $6,000. D) $3,500.

Q: The relationship between the price level and the real Gross Domestic Product (GDP) without full adjustment or full information is represented byA) the long-run aggregate supply curve. B) the short-run aggregate supply curve. C) the aggregate demand curve.D) the distance between the long-run aggregate supply curve and the short-run aggregate supply curve.

Q: An increase in the amount of money in circulation would cause aA) shift of the aggregate demand curve to the right.B) shift of the aggregate demand curve to the left. C) movement up the aggregate demand curve.D) movement down the aggregate demand curve.

Q: According to the late Julian Simon,A) legal immigrants have a favorable impact on the welfare of American citizens, but illegal immigrants have a negative impact. However, the positive effect of the legal immigrants is stronger than the negative impact of the illegal immigrants.B) legal immigrants have a favorable impact on the welfare of American citizens, but illegal immigrants have a negative impact that almost exactly offsets the positive effect of the legal immigrants.C) legal and illegal immigrants have a positive effect on the welfare of American citizens.D) legal and illegal immigrants have a negative effect on the welfare of American citizens.

Q: Measuring total aggregate production in current dollars uses which of the following measures?A) real personal income B) real gross domestic productC) nominal gross domestic product D) nominal net domestic product

Q: The total market value of the nationʹs annual final products produced domestically best defines theA) GDP. B) GNP. C) CPI. D) PPI.

Q: If 2005 is the base year in the table shown above, what is the price index for the year 2010?A) 100.0 B) 114.7 C) 147.1 D) 141.7

Q: The largest major change in the U.S. labor force participation rate during the last few decades has beenA) the number of prisoners dropping out of the labor force. B) the increase in the number of working women.C) the decrease in the number of working women.D) the increase in the number of illegal immigrants in the United States.

Q: In general, a country that adheres to the rule of law has A) a higher level of real GDP per capita. B) a lower level of real GDP per capita. C) no relationship to the level of real GDP per capita. D) an inverse relationship to the level of real GDP per capita.

Q: The rate of unemployment below which the rate of inflation tends to rise and above which the rate of inflation tends to fall is called theA) FOMC unemployment rate.B) GDP gap unemployment rate.C) inflation-stabilizing equilibrium rate of unemployment. D) nonaccelerating inflation rate of unemployment.

Q: The equation of exchange isA) an assumption that is not always true.B) true in the short run but not always in the long run. C) an accounting identity and therefore is always true. D) a theory developed at the Federal Reserve.

Q: Explain how the Fed increases the money supply when it buys bonds in the open market.

Q: Federal Reserve notes areA) paper currency. B) savings bonds.C) checks issued by the U.S. government. D) travelersʹ checks.

Q: In the long run, what effect does a governmentʹs deficit spending have on equilibrium real Gross Domestic Product (GDP)?A) Government deficit spending will increase equilibrium real Gross Domestic Product (GDP).B) Deficit spending will decrease the nationʹs equilibrium real Gross Domestic Product (GDP).C) Higher government deficits will not raise equilibrium Gross Domestic Product (GDP) above the full-employment level.D) Higher government deficits will raise equilibrium Gross Domestic Product (GDP) above the full-employment level and also have an inflationary effect.

Q: In the extreme case of a complete crowding -out effect,A) an increase in interest rates will stimulate investment spending.B) an increase in tax rates will stimulate work effort.C) an increase in government spending will not increase aggregate demand. D) an increase in government spending will stimulate investment spending.

Q: In the above figure, point E represents the level of real GDP at which planned saving equals planned investment. At point C,A) unplanned inventories increase.B) changes in inventories cannot be determined.C) unused industrial capacity exists in the economy.D) unplanned inventories decrease.

Q: Suppose real disposable income increases by $1,000. Given this information, we know thatA) consumption will generally increase by exactly $1,000.B) consumption will generally increase by less than $1,000. C) consumption will generally increase by more than $1,000. D) saving will generally increase by exactly $1,000.

Q: In the short run, an increase in the price level induces firms to expand production because A) prices of inputs are held constant, so the higher prices for firmsʹ products imply that it is profitable to expand production. B) each firm must keep its production level up to the level of its rivals, and some firms will expand production as the price level increases. C) higher prices allow firms to hire more inputs by offering higher prices for inputs, which increases productivity and profits. D) they can increase profits by increasing maintenance costs.

Q: Which of the following will NOT shift the aggregate demand curve? A) a change in the price level B) a change in tax rates C) a change in the amount of money in circulation D) a change in real interest rates

Q: The immediate effect of increased population growth, with real GDP growth unchanged, is toA) reduce economic growth by reducing per capita real GDP.B) increase economic growth by stimulating more saving. C) increase economic growth by boosting the capital stock. D) leave economic growth unchanged.

Q: Real GDP isA) nominal GDP adjusted for depreciation.B) nominal GDP adjusted for price changes.C) nominal GDP adjusted for transfer payments.D) nominal GDP adjusted for indirect business taxes.

Q: GDP is a measure ofA) production. B) innovation.C) inflation. D) the amount of money available.

Q: If 2005 is the base year in the table shown above, what is the price index for the year 2005?A) 100.0 B) 121.3 C) 147.1 D) 141.7

Q: The labor-force participation rate shows the percentage ofA) people not working, but who want to work.B) people who are not actively participating in meaningful economic activity. C) new entrants into the labor force.D) non-institutionalized working-age people who are actually working or seeking employment.

Q: If a country has a 4 percent annual growth in real GDP and a one percent growth in population, its per capita growth of real GDP isA) five percent. B) four percent.C) three percent. D) 1/4 = 0.25 percent.

Q: Suppose the Fed permanently increases the money supply by a given amount. Which of the following is (are) most likely to occur in the long run as a result of this monetary policy action? A) an increase in employment B) a reduction in the real interest rate C) a decrease in unemployment D) all of the above E) none of the above

Q: According to the equation of exchange, if real Gross Domestic Product (GDP), in base year dollars, is $25 billion, the money supply is $1 billion, and the price index equals 2, then the income velocity of money isA) 5. B) 10. C) 25. D) 50.

Q: Why does the money supply increase when the Fed buys a bond but does not change when a business buys a bond?

Q: A transaction deposit isA) a fiduciary monetary system. B) a checkable and debitable account.C) opportunity cost. D) the liquidity approach.

Q: Which is the fastest growing component of the federal government budget? A) Spending on the military and the war on terrorism B) Spending to improve the nationʹs schools C) Spending to improve and expand the nationʹs infrastructure D) Spending on entitlements

Q: Which one of the following statements is NOT true?A) Expansionary fiscal policy is employed to offset recessionary gaps. B) Expansionary fiscal policy has an effect on interest rates.C) Crowding out dilutes the effect of expansionary fiscal policy. D) When crowding out occurs, fiscal policy is more effective.

Q: In the above figure, point E represents the level of real GDP at which planned saving equals planned investment. At point A,A) unplanned inventories increase.B) changes in inventories cannot be determined.C) unused industrial capacity exists in the economy. D) unplanned inventories decrease.

Q: When consumption spending is greater than disposable income, we know with certainty that we haveA) dissaving. B) excess thrift.C) positive savings. D) negative net investment.

Q: The short-run aggregate supply (SRAS) curve represents the relationship betweenA) the price level and the real Gross Domestic Product (GDP) without full adjustment or full information.B) the price level and the real Gross Domestic Product (GDP) without full adjustment but with full information.C) the price level and the nominal Gross Domestic Product (GDP).D) the decisions of producers and the decisions of consumers.

Q: A weakening in consumer confidence causes aA) shift of the aggregate demand curve to the right.B) shift of the aggregate demand curve to the left.C) movement up along the aggregate demand curve.D) movement down along the aggregate demand curve.

Q: Entrepreneurship functions better whenA) the government performs the entrepreneurial function.B) there is a well-defined property rights system. C) saving is relatively low.D) most of the population has low levels of education.

Q: Nominal GDP is calculated usingA) the market prices during the year under consideration.B) the prices from some base year to adjust for price changes. C) the average of prices from the three preceding years.D) the prices from the preceding year.